Tuesday, March 10, 2009

It has been interesting to watch the recent struggles of Sirius XM Radio and look back at the concerns raised when the Sirius – XM merger was originally announced. Just last month, Sirius XM seemed destined to file for bankruptcy before being saved, at least temporarily, by Liberty Media. What happened to what merger opponents claimed would be a competition-killing media giant?

The National Association of Broadcasters were among the first who cried foul of the merger, claiming that the consolidation of Sirius' and XM's market shares in the satellite radio market would be a “merger to monopoly” that would result in disaster for terrestrial radio broadcasters. The NAB argued that satellite radio represented a discrete product market, which, if this merger were approved, would be controlled entirely by a single company that could impose monopoly prices upon consumers.

This argument seemed flawed then, and now seems even more so in retrospect. In a CNET article written in April 2007 by FSF President Randolph J. May, May rightfully predicted that even if the merger were approved, a consolidated Sirius XM would still likely face strong competitive pressures from other forms of audio entertainment. May noted that the audio services marketplace offered a wide range of distribution technologies (including terrestrial broadcast stations, wireless audio services, iPods, MP3 players and similar devices, and the Internet), none of which appeared to be threatened into obsolescence by a merger between the two satellite radio providers.

When Sirius and XM completed their merger last July, it was supposed to represent a strong new beginning, with the two fledgling companies becoming an entertainment force. Instead, a 17-month approval process diverted valuable executive attention from the underlying business, and consumers grew more enamored with their iPods, mobile phones and other alternatives to satellite radio.

The result after all this controversy? Way back on February 20, 2007, when the proposed merger was first announced, Sirius shares closed at $3.92. Upon the announcement of DOJ approval on March 24, 2008 and FCC approval on July 25th, 2008, Sirius XM closed at $3.15 and $2.25, respectively. Today, Sirius XM shares are valued at a measly $0.124.

Of course there are always those who will see any potential merger as problematic without really trying to examine the actual competitive effect of the transaction in light of today's dynamic communications and information market. The marketplace – and industry players – change so rapidly that it is difficult to grasp its true state by simply looking at a current snapshot. In fact, business models in the media industry actually seem to be trending towards deconsolidation. Clear Channel, once the poster boy of consolidation, has been selling off its assets the last couple of years in order to stay afloat. The FCC also recently approved Time Warner's request to spin-off of its cable services.

These examples have shown that, in the fast-changing transitory telecommunications market space, it is nearly impossible to make an ex ante prediction of the business model that will ultimately prove most successful – and regulators, in an appropriate show of humility, should err on the side of caution in trying to do so.